Price of Gold Fundamental Daily Forecast – Prices Higher on Posturing Ahead of Fed Announcements

Gold closed lower on Tuesday as the U.S. Dollar strengthened ahead of a Federal Reserve meeting at which the Federal Open Market Committee is widely expected to raise interest rates for the first time this year.

April Comex Gold futures settled at $1311.90, down $5.90 or -0.45%.

Higher U.S. interest rates tend to be bearish for gold prices because they raise bond yields, reducing the appeal for the non-yielding asset. They also tend to boost the dollar, which makes dollar-denominated gold a less-desirable asset and more expensive for foreign buyers.

Talk of rising rates has dominated the trade in the gold market since the start of the year. This has helped push gold prices down about 4 percent from a 1 ½-year high reached in January.

Forecast

A dip in the U.S. Dollar is helping to push gold prices a little higher early Wednesday. Most of this price action is likely posturing ahead of today’s Fed interest rate decision, monetary policy statement and economic projections.

At 0638 GMT, April Comex Gold futures are trading at 1313.60, up $1.80 or +0.14%.

According to the CME Group’s FedWatch tool, market expectations for a March rate hike are 94.4 percent as of Tuesday afternoon.

Given this certainty, investors are most likely to react to any hints offered by the Fed about whether the central bank will stay on track for three rate hikes in 2018 or if it expects to be more aggressive by forecasting four rate hikes. The Fed’s dot plot projections will reveal if the central bank believes an overheating economy needs to be cooled off by more aggressive monetary policy.

The Gold prices are likely to break further if the Fed is hawkish in its tone. A dovish Fed could trigger a short-covering rally. However, keep in mind that investors are still concerned about a trade war, possible tariffs against China, elevated volatility and rising negative sentiment. These factors could limit gains or accelerate any sell-off.

As of Tuesday’s close, futures market data from the CME Group shows the chances of rates going up more than three times this year is around 40%, compared with 25% a month ago.

Traders will also get the opportunity to react to the U.S. Existing Home Sales report. It is expected to come in at 5.41 million, up slightly from 5.38 million.